United States Dollar Index holds steady near 100.00 on Middle East tensions, rising Fed hike bets
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 100.10 during the Asian trading hours on Monday. The DXY holds steady near a monthly high amid escalating tensions in the Middle East and rising bets of a Federal Reserve (Fed) rate hike.
The Israel Defense Forces (IDF) said that it struck military targets in western and central Iran, hours after Iran fired a salvo of missiles at northern Israel, the BBC reported on Monday. Iranian state television reported the sound of explosions being heard in Isfahan, Tabriz and Tehran, without immediately elaborating.
US President Donald Trump said on Sunday he would tell Israeli Prime Minister Benjamin Netanyahu not to strike back after Iran fired a salvo of missiles at Israeli targets in retaliation for an attack on the outskirts of Beirut, per Axios. Rising tensions in the Middle East could boost the safe-haven flows, supporting the US Dollar against its rivals in the near term.
The US economy posted a third straight month of strong job gains in May. The US Nonfarm Payrolls (NFP) rose by 172K in May, versus the 179K increase (revised from 115K), according to the Bureau of Labor Statistics on Friday. This figure came in stronger than the market expectation of 85K. Additionally, the Unemployment Rate remained unchanged at 4.3% in May, in line with the market consensus.
Markets are now pricing in more than 70% probability that the Fed will raise rates in December, sharply up from a 45% probability a week ago, according to the CME FedWatch tool.
"The U.S. payrolls report released... paints a picture of a U.S. labour market that is strengthening despite the ongoing energy price shock," said Jonas Goltermann, chief markets economist at Capital Economics.
"That combination makes policy tightening by the Fed later this year increasingly probable... we now expect the FOMC to deliver two 25-basis-point rate hikes later this year, in response to the energy supply shock and the re-acceleration of the U.S. labour market,” Goltermann added.
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